We should all plan for our future. Everyone needs a valid Will, especially those who must arrange care for children or pets. Furthermore, many adults benefit from establishing legal arrangements for times when they can no longer make independent decisions. Across Australia, these legal instruments give a trusted person the authority to make financial, lifestyle, or medical decisions in your best interests.
However, you can only put these forward-planning arrangements in place while you hold decision-making capacity. Your family members cannot execute a Will on your behalf. Likewise, loved ones cannot grant an Enduring Power of Attorney or appoint an Enduring Guardian if you lose the legal capacity to make those decisions yourself.
This article provides a general legal summary only. You should always consult an experienced estate planning lawyer regarding your specific circumstances.
What Is the Presumption of Capacity?
You require legal capacity whenever you make a Will, buy or sell real estate, apply for a loan, execute an Enduring Power of Attorney, appoint an Enduring Guardian, or sign a binding contract. Under Australian law, “capacity” means you can understand relevant facts, weigh options and consequences, and make a reasoned decision.
In New South Wales, the law assumes every adult has the mental capacity to make legal decisions. (This contrasts with the legal presumption that minors lack capacity and require parental guidance.)
However, interested parties can rebut this presumption if clear evidence shows a person lacks decision-making ability. Under guidelines detailed in the NSW Department of Communities and Justice Capacity Toolkit, cognitive impairment may stem from a lifelong intellectual disability, an acquired brain injury, dementia, or a severe mental illness.
How Do You Determine Legal Capacity?
Determining mental capacity presents complex legal challenges. In fact, Australian law does not rely on a single, universal definition of “capacity.” Instead, different legal actions demand different levels of cognitive understanding.
The absence of a single definition often creates confusion for families and professionals. However, fundamental legal principles help clarify how lawyers evaluate decision-making capacity when questions arise.
What Level of Capacity Is Required?
Legal capacity is not a blanket medical diagnosis. A doctor does not simply label someone “incapable” and strip away all their decision-making rights. Instead, legal professionals and clinicians evaluate capacity on a decision-by-decision basis.
When someone instructs a solicitor to draft a Will, the lawyer begins with the legal presumption that the client has capacity. If evidence casts doubt on that assumption (such as difficulty understanding what a Will does), the solicitor will request a formal assessment from a medical specialist. The doctor evaluates a specific question: Does this individual have the testamentary capacity to make a Will?
Some legal transactions require higher cognitive capacity than others. For example:
- Managing complex financial portfolios requires higher capacity than making a straightforward Will.
- A person who lacks capacity to execute a complex new Will may still retain the capacity to revoke an existing one.
- A person with capacity to make a basic Will may lack the capacity to execute an Enduring Power of Attorney under the Powers of Attorney Act 2003 (NSW).
These distinctions depend entirely on the complexity of the information involved and the risks associated with the transaction.
Options When a Loved One Lacks Capacity
Solicitors frequently receive requests from family members who wish to become a Power of Attorney for a relative experiencing cognitive decline. However, only the individual making the appointment can grant a Power of Attorney or Enduring Guardianship, and they must do so while they hold full capacity.
Granting a Power of Attorney carries significant legal weight. While a Will takes effect only after death, a Power of Attorney exposes a living person to financial risk and potential exploitation if granted without proper understanding.
Applying to NCAT for Guardianship and Financial Management
If your loved one has already lost capacity without appointing an Attorney or Enduring Guardian, you can no longer execute those private legal documents. Instead, you must apply to the NSW Civil and Administrative Tribunal (NCAT) Guardianship Division.
NCAT can issue formal orders appointing a financial manager (to manage bank accounts and property) or a guardian (to decide accommodation, care, and medical treatment) under the Guardianship Act 1987 (NSW).
Conclusion
Protecting your autonomy requires making legal arrangements while you possess full decision-making capacity. Once cognitive decline occurs, family members must navigate complex tribunal applications to manage your welfare and estate.
If you or someone you know needs help with estate planning, capacity concerns, or NCAT applications, please contact our legal team on 02 9792 8413 or email [email protected].